GCG’s Q2 2020 Middle Market Private Equity Update provides an overview of latest trends in the private equity market.

Key findings include the following:

• • The 2^nd Quarter of 2020 is drawing some parallels to the Great Recession of 2007-2009. Prior to the 2008 recession, Middle Market (MM) Private Equity (PE) activity peaked at $230B in 2007 with 77% of that invested in deals between $100M and $500M. At its lowest point during the recession, total deal value in the MM hit $77B, which represented a decline of 67%. For the first 6 months of 2020, the value of PE deals is off approximately 34% from 2019. Based on our analysis of prior recessions, we expect the second half of 2020 and 2021 will continue the decline.

• • Capital overhang, which represents the amount of capital raised by PE funds and yet been invested, stands at its highest historical level. The majority of this capital is in funds that are 0-2 years old and mostly based in the U.S. The $1.2T of overhang at the end of 2019 has between 5-7 years to be invested based on average fund mandates that capital needs to be deployed within seven years. This means that in combination with the current market volatility, the overhang has potential to keep growing. This will set the foundation for a strong M&A run later in 2021 and into 2022.

• • Private Equity deal volume in Q2 2020 was lowest level for any quarter over the past ten years.  The 2^nd quarter decline represented a drop of 59% and 61% from Q2 2018 and Q2 2019, respectively. Q2 2020 private equity deals also declined 55% from Q1 2020. Deals under $100M continue to represent the majority of PE demand comprising 75 percent of MM deal volume during the 2^nd The number of deals under $25M stood at 53% compared to the 2019 average of 41%, reflecting a reduction in larger deals getting done during the 2^nd quarter.

Click here for the full update.

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